Critics say Wall Street reform bill exempts SEC from FOIA

A new financial overhaul law is drawing renewed scrutiny over a provision that some argue potentially insulates the Securities and Exchange Commission from complying with public records requests under the Freedom of Information Act.

The Dodd-Frank Wall Street Reform and Consumer Protection Act, signed into law by President Obama on July 21, contains several provisions affecting the transparency of government entities. One notable provision in the act -- section 929I -- allows the SEC to refuse to comply with FOIA requests regarding the agency’s “surveillance, risk assessments, or other regulatory and oversight activities.”

The SEC does not have to disclose information it obtains during those activities if it comes from regulated groups such as broker-dealers, investment companies and investment advisers.

U.S. Rep. Darrell Issa of California, the ranking Republican on the House Oversight and Government Reform Committee, said Thursday he would introduce a bill to repeal the provision.

“Regardless of intent, both Democrats and Republicans alike should agree that we cannot allow this regulatory body that failed to catch Allen Stanford's fraud and Bernie Madoff's Ponzi scheme to operate in secrecy,” Issa said in a statement.

On Wednesday, Fox Business News reported that the provision covers most activities by the regulatory agency. Fox Business quoted a former SEC staff attorney under the Bush administration, Gary Aguirre, as saying the provision allows the SEC “to promulgate its own rules and regulations regarding the disclosure of records without getting the approval of the Office of Management and Budget, which typically applies to all federal agencies.”

Despite the new confidentiality provision creating a statutory exemption to the federal Freedom of Information Act, the SEC says it still remains subject to FOIA. The provision “protects highly sensitive and proprietary information such as customer account information and trading algorithms,” SEC spokesman John Nester said in a statement. Protecting this information from disclosure encourages brokers and other entities that register with the SEC to cooperate when the agency requests documents from them.

In June, the SEC agreed to pay $755,000 to settle a wrongful termination suit Aguirre brought after he was fired in 2005 during an investigation into possible insider trading by the hedge fund Pequot Capital Management and its co-founder, Arthur Samberg. The investigation ended without a case being brought.